Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part: Per Unit 10,000 Units per Year Direct materials $ 18 $ 180,000 Direct labor 12 120,000 Variable manufacturing overhead 2 20, 000 Fixed manufacturing overhead, traceable 8 80,000 Fixed manufacturing overhead, allocated 4 40,000 Total cost $ 44 $ 440,000 One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 2,450 more units of another product that earns a contribution margin per unit of $8.00. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier?
Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part: Per Unit 10,000 Units per Year Direct materials $ 18 $ 180,000 Direct labor 12 120,000 Variable manufacturing overhead 2 20, 000 Fixed manufacturing overhead, traceable 8 80,000 Fixed manufacturing overhead, allocated 4 40,000 Total cost $ 44 $ 440,000 One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 2,450 more units of another product that earns a contribution margin per unit of $8.00. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has
agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the
following costs of making the part: Per Unit 10,000 Units per Year Direct materials $ 18 $ 180,000 Direct labor
12 120,000 Variable manufacturing overhead 2 20, 000 Fixed manufacturing overhead, traceable 8 80, 000 Fixed
manufacturing overhead, allocated 4 40,000 Total cost $ 44 $ 440,000 One-half of the traceable fixed manufacturing
overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If
the company chooses to buy this component part from a supplier, then the supervisor who oversees its production
would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and
sell 2,450 more units of another product that earns a contribution margin per unit of $8.00. What is the financial
advantage (disadvantage) of buying 10,000 units from the supplier?
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